Nature and Scope of

Managerial Economics

What is Economics?

A social science that studies choice with

scarcity of resources.
Economics = Oikos + Nomos (Law of
Households).
Social science which deals with efficient use
of scarce resources.

MICRO ECONOMICS
The branch of economics that analyzes the
market behavior of individual consumers and
firms in an attempt to understand the
decision-making process of firms and
households.
1. Theory of Individual/Market Demand.
2. Theory of Production and Cost.
3. Theory of Markets and Price.
4. Theory of Profit.

Macro Economics
Study of the entire economy in terms of the total
amount of goods and services produced, total income
earned, level of employment of productive resources,
and general behavior of prices.
Macroeconomics examines economy-wide
phenomena such as changes in unemployment,
national income, rate of growth, gross domestic
product, inflation and price levels.

Managerial Economics
Managerial economics can be broadly defined
as the study of economic theories, logic and
tools of economic analysis that are used in
the process of decision making. Economic
theories and techniques of economic analysis
are applied to analyze business problems,
evaluate business options and opportunities
with a view to arriving at an appropriate
business decision.

Economics V/S Managerial

Economics
Traditional Economics

Managerial Economics

It has Micro & Macro aspects.

Micro aspect.

It is both positive and normative

science.
It deals with theoretical aspect.

Normative in nature.
Practical Aspect

Formulation of Theories and Principles Application of Theories and Principles

Comprehensive and Wider scope.

Narrow and Limited scope.

Managerial Economics
Emergence of managerial economics as a separate course of management
studies can be attributed to at least three factors
a)

Growing complexity of business decision making process due to

changing market conditions and business environment.

b)

The increasing use of economic logic, conceptual theories and tools of

economic analysis in the process of business decision making process.

c)

Rapid increase in demand for professionally trained managerial

manpower.

Nature

Art or science?

Scope

Demand Analysis.
Cost Analysis.
Pricing Practices and Policies.
Profit Management.
Capital Management.
Analysis of Business Environment.

Importance

Basis of Business Policies.

Predicting economic Quantities.
Estimating economics relationship.
Helpful in Understanding the External forces
constituting the environment.
Reconciling theoretical concepts of economics
in relation to the actual business behavior and
conditions.

Fundamental Concepts

Opportunity cost.
Pricing.
Distribution.
Incremental Principle.
Business Profit.
Economic Profit.

Role of Managerial Economist in

the Firm
Demand estimation and forecasting.
Preparation of business /sales forecasts.
Analysis of market survey to determine the
nature and extent of competition.
Analyzing the issues and problems of
concerned industry.

Assisting the business planning process of the firm.

Discovering new possible fields of business endeavor and
its cost-benefit analysis.
Advising on prices, investment and capital budgeting
policies.
Evaluation of capital budgeting etc.

Decision Making Areas

Business decision making is influenced not only by economic
considerations, but also by human behavioral, technological
and environmental factors due to growing public awareness.
Decision making and processing information are two important
tasks of managers
In order to make good decisions managers must be able to obtain,
process and use information.

Decision
Making
Areas

Demand
forecasting

Production
planning
and cost
revenue
decision

Study of
economic
environment

Pricing and
related
decisions

Investment
decisions

Theory of The Firm

1. Firm combines and organizes resources for the
purpose of producing goods and/or services for sale.
2. Internalizes transactions, reducing transactions
costs/time.
3. Resource owners use the income generated from the
sale of their services/resources, to purchase goods
and services produced by firms. Circular flow of
economic activity is thus completed.
4. Primary goal is to maximize the wealth or value of
the firm.

Role of Business in Society

Why Firms Exist
Business is useful in satisfying consumer
wants.
Business contributes to social welfare

Social Responsibility of Business

Serve customers.
Provide employment opportunities.
Obey laws and regulations.

You Are Welcomed To Ask

Questions